Rethinking bond covenants BONDHOLDERS MAY WANT TO RECONSIDER THE TERMS ON HIGH-YIELD BONDS IN THE CURRENT MARKET

摘要

Noteholders should be alert to the possibility of their bonds becoming structurally subordinated through the incurrence of additional secured debt, by the refinancing of subordinated debt with senior or paripassu debt, and by the refinancing of paripassu debt with structurally senior debt. Debt is considered "structurally subordinated" to other debt (the "structurally senior debt") if the lenders of the structurally subordinated debt will not have access to the assets of the entity that incurred the structurally senior debt until after all the creditors of that entity have been paid. As discussed below, many indentures do not protect against such outcomes.